<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 30, 1998 0-16288
HALIS, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-1366235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 641-5555
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value 57,923,124
Class Outstanding at August 6, 1998
<PAGE> 2
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C>
Cash $ 8,522
Customer claims and premium funds 539,469
Receivables, less allowance for possible losses
of $ 328,815 771,531
Other current assets 201,781
-----------
Total current assets 1,521,303
PROPERTY AND EQUIPMENT
Computer equipment 475,004
Office furniture and fixtures 422,595
Leasehold improvements 47,685
Less: accumulated depreciation (278,385)
-----------
Total property and equipment, net 666,899
OTHER ASSETS
Deposits 120,172
Goodwill, net of accumulated
amortization of $ 1,273,471 2,450,625
Capitalized software development costs,
net of accumulated amortization of $ 48,699 112,296
Other intangibles, net of
accumulated amortization of $ 24,667 82,660
Notes receivable - related parties 582,799
Long-term investments 78,125
-----------
Total other assets 3,426,677
TOTAL ASSETS $ 5,614,879
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 3
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Accounts payable and accrued expenses $ 1,941,086
10% Convertible promissory notes 50,000
Deferred revenue and customer deposits 1,085,827
Payroll and sales taxes payable 139,902
Notes payable 432,325
Notes payable - related parties 106,241
Obligations under capital leases - current portion 134,643
Other current liabilities 620,740
------------
Total current liabilities 4,510,764
LONG-TERM DEBT
Obligations under capital leases - net of current portion 59,242
STOCKHOLDERS' EQUITY
Preferred stock $.10 par value 5,000,000
authorized; 0 issued and outstanding 0
Common stock $.01 par value 100,000,000
authorized; 54,874,785 issued and outstanding 548,748
Additional paid-in capital 37,206,055
Stock subscription receivable (102,700)
Unrealized loss on investment (46,875)
Accumulated deficit (36,560,355)
------------
Total stockholders' equity 1,044,873
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,614,879
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
THE THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
SALES REVENUE $ 2,098,270 $ 2,285,573
COST AND EXPENSES
Cost of goods sold 539,023 967,979
Selling, general, and administrative 2,761,098 1,893,482
Research and development 203,146 423,660
------------ ------------
3,503,267 3,285,121
OPERATING LOSS (1,404,997) (999,548)
OTHER INCOME (EXPENSES)
Gain (loss) on asset disposal 0 0
Interest expense (18,826) (39,113)
Interest income 11,776 13,973
Other income (expense) 0 (5,415)
Merger costs 0 (18,233)
------------ ------------
(7,050) (48,788)
------------ ------------
NET LOSS $ (1,412,047) $ (1,048,336)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.03) $ (0.03)
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 53,184,487 32,227,220
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
SALES REVENUE $ 4,289,368 $ 3,605,926
COST AND EXPENSES
Cost of goods sold 1,044,672 1,399,064
Selling, general, and administrative 5,872,995 3,379,773
Research and development 436,544 708,334
------------ ------------
7,354,211 5,487,171
OPERATING LOSS (3,064,843) (1,881,245)
OTHER INCOME (EXPENSES)
Gain (loss) on asset disposal 0 8,678
Interest expense (34,210) (77,492)
Interest income 12,490 22,307
Other income (expense) (5,414) 3,253
Merger costs 0 (32,137)
------------ ------------
(27,134) (75,391)
------------ ------------
NET LOSS $ (3,091,977) $ (1,956,636)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.06) $ (0.07)
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 50,051,356 29,822,386
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
<TABLE>
<CAPTION>
Cash flows from operating activities 1998 1997
----------- -----------
<S> <C> <C>
Net loss $(3,091,977) $(1,956,636)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation 540,835 688,056
Decrease in provision for losses on accounts receivable (78,450) 0
Changes in operating assets and liabilities, net of assets and
liabilities acquired and sold
Increase in accounts receivable 4,254 (899,900)
Increase in accounts receivable - related parties (7,968) (541,347)
Increase in customer claims and premium funds (188,794) (516,453)
Increase in other current assets (138,179) (78,962)
Increase in deposits (5,255) (106,085)
Decrease in intangible assets 0 5,612
Increase in accounts payable & accrued expenses 72,030 394,622
Decrease in accrued expenses - related parties 0 (75,784)
(Decrease)/increase in sales & payroll taxes (132,732) 18,593
Increase in deferred revenues & customer deposits 695,976 699,712
Increase in premiums payable 0 510,965
Increase in other current liabilities 266,321 0
----------- -----------
Total adjustments 1,028,038 99,029
----------- -----------
Net cash used by operating activities (2,063,939) (1,857,607)
Cash flows from investing activities:
Purchases of property and equipment (15,478) (461,452)
Net costs of acquisitions 0 (64,077)
Decrease in long term investments 0 (5,000)
----------- -----------
Net cash used by investing activities (15,478) (530,529)
Cash flows from financing activities:
Proceeds from issuance of common stock 0 2,037,747
Proceeds from 6% convertible debentures 1,166,500 0
Proceeds from 4% convertible debentures 100,000 0
Private equity rescissions (50,000) 0
Net payments on 7% convertible promissory notes (190,000) 0
Net (payments) proceeds on lines of credit (92,334) 34,862
Net (payments) proceeds on capital leases (98,347) 172,445
Net proceeds from notes payable 51,311 78,786
Net proceeds from notes payable - related parties 40,000 50,232
----------- -----------
Net cash provided by financing activities 927,130 2,374,072
----------- -----------
Net decrease in cash (1,152,287) (14,064)
Cash, beginning of the period 1,160,809 719,989
----------- -----------
Cash, end of period $ 8,522 $ 705,925
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
management's opinion, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included. Operating results for the
three month and six month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and the notes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1997.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Acquisitions and Dispositions
On June 30, 1998 the Company sold to American Enterprise Solutions,
Inc. ("AES") all of the stock of Physician's Resource Network, Inc. ("PRN"), a
wholly owned subsidiary of the Company, that the Company had acquired in July
1997. Located in Tampa, Florida, PRN delivers practice management services to
healthcare providers. The sale to AES was effected pursuant to an Agreement and
Plan of Merger dated June 25, 1998 (but effective as of June 30, 1998) among the
Company, AES, PRN Acquisition Co., and PRN (the "Merger Agreement"). Under the
terms of the Merger Agreement, the Company received AES's promise to deliver
within 90 days of the closing date, all of the shares of HALIS common stock
owned by AES of record and beneficially as of the closing date, including
without limitation shares that AES has the right to acquire as of the closing
date, which shall be no less than 9,984,000 shares of HALIS common stock. If AES
delivers more than 11,000,000 shares of HALIS common stock under the terms of
the Merger Agreement, then the Company must also transfer to AES the right to
receive contingent installment payments (the "Installment Payments") under that
certain Asset Purchase Agreement dated December 31, 1997, between Communications
Wiring and Accessories, Inc. and HALIS Services, Inc., a subsidiary of the
Company. To date, the Company has not recorded a receivable with respect to
Installment Payments because of the uncertain timing and probability of such
Installment Payments. The Company retained certain liabilities in the aggregate
amount of $478,797 related to PRN.
Charles Broes, who served as a director of the Company from July 1,
1997 until he resigned on June 10, 1998, serves as the Chief Executive Officer,
Secretary, Treasurer and board member of AES. Mr. Broes did not participate in
any meetings of the Company's board of directors with respect to the Merger
Agreement.
For federal income tax purposes, the Merger is not intended to
constitute a reorganization within the meaning of Section 368 of the Code. The
parties to the Merger Agreement acknowledge that the Merger is intended to
constitute a redemption by HALIS of all HALIS stock owned by AES pursuant to
Section 302(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code").
8
<PAGE> 8
The amount of consideration under the AES Merger Agreement was
determined by arms-length negotiations between informed business persons and
represents, in the Company's view, fair value for PRN. The Company has not
received any of the shares of HALIS common stock to be delivered by AES pursuant
to Merger Agreement, and further; AES is disputing the number of shares it is
obligated to deliver. The Company is working to resolve this issue and intends
to ensure that the terms of the Merger Agreement are enforced. Due to the
uncertainty regarding the precise timing and amount of shares of HALIS common
stock that will be delivered by AES under the terms of the Merger Agreement, the
Company will defer the recognition of the expected gain on the disposition of
PRN until the quarter ending September 30, 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of HALIS,
Inc. and its wholly owned subsidiaries. Due to the Company's decision to defer
the recognition of the expected gain on the disposition of PRN until the quarter
ending September 30, 1998, the consolidated balance sheet at June 30, 1998
presented herein includes the accounts of PRN. All significant intercompany
accounts and transactions have been eliminated.
Revenue Recognition
Revenue consists primarily of physician practice management fees, third
party claims processing fees, consulting services, software licensing fees,
sales of related computer hardware, and post contract customer support and
maintenance.
<TABLE>
<S> <C>
Practice management, claims When the services are provided.
processing, consulting
services, installation,
training and education
Software Licensing Revenue After shipment of the product and
fulfillment of acceptance terms, provided no
significant obligations remain and
collection of resulting receivable is deemed
probable.
Contract Support Ratably over the life of the contract
from the effective date.
Hardware Upon shipment of computer equipment to the
customer, provided no significant obligations
remain and collection of resulting receivable
is deemed probable.
Subscription Sales Ratably over the life of the contract
from the effective date.
</TABLE>
Goodwill
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over a period of 5
years. The Company assesses the
9
<PAGE> 9
recoverability of its goodwill whenever adverse events or changes in
circumstances or business climate indicate that expected future cash flows
(undiscounted and without interest charges) in individual business units may not
be sufficient to support recorded goodwill. If undiscounted cash flows are not
sufficient to support the recorded asset, an impairment is recognized to reduce
the carrying value of the goodwill based on the expected future cash flows of
the business unit.
Realization of Assets
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company has sustained losses
during the years ended December 31, 1996 and 1997, and such losses are
continuing in fiscal year 1998. Additionally, the Company has used, rather than
provided, cash in its operating activities during the years ended December 31,
1996 and 1997, and this continues to be the case in 1998. The Company had a
working capital deficiency as of December 31, 1997 and as of June 30, 1998.
Specifically, the Company estimates that it incurred negative cash flow from
operating activities of approximately $2,064,000 from January 1, 1998 to June
30, 1998. Due to its cash flow situation, the Company has negotiated payment
terms with vendors representing a significant portion of the accounts payable
and is managing the payment of the remaining accounts payable on a case by case
basis. The Company's cash balance at July 31, 1998 was approximately $50,000.
In view of the matters described in the preceding paragraph, there is a
significant doubt about the Company's ability to continue as a going concern.
The recoverability of the recorded assets and satisfaction of the liabilities
reflected in the accompanying balance sheet is dependent upon continued
operation of the Company, which is in turn dependent upon the Company's ability
to meet its financing requirements on a continuing basis and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management plans to take the following steps to improve its operating
results and financial position, which it believes to be sufficient to provide
the Company with the ability to continue in existence during the ensuing twelve
month period.
The Company is presently raising capital in a private placement to
provide approximately $1,750,000 of working capital. Management believes that
the net proceeds contemplated by this offering will be sufficient to fund the
Company's operations through September 1998. The Company has raised net proceeds
of approximately $1,499,000 from this offering as of August 3, 1998 primarily in
the form of convertible debentures. If the Company is unable to increase
revenues and cut costs in order to generate sufficient positive cash flow
beginning in October of 1998, an additional capital infusion will be required
for the Company to meet its obligations.
Thus far in 1998, the Company has had limited success entering into
contracts for the sale of the HES product. The Company continues to focus on the
sale of HES software, which the Company believes will continue to gain market
acceptance. In addition to focusing on near term profitability, the Company is
seeking strategic relationships, including possible business combinations, which
will enhance the Company's capital structure, as well as its sales and marketing
infrastructure.
While the Company believes the plan that it is undertaking will be
successful and is in the best interest of the Company, no assurances can be
given that the Company indeed will be
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<PAGE> 10
successful and that the Company will continue as a going concern. Risk factors
include, among others, (i) timely completion of modifications and enhancements
to the Company's healthcare products, (ii) continued working capital
availability while such products are being developed, (iii) continued
availability of key members of management, (iv) acceptance of the Company's
products by customers in the healthcare market, (v) uncertainty of market
acceptance, (vi) reliance on a limited number of products, (vii) effective
integration of acquisitions, (viii) technological change, and (ix) competition.
Merger Agreements
On July 31, 1998, the Company and HealthWatch, Inc. ("HealthWatch")
(NASDAQ: HEAL) announced the signing of a Letter of Intent to Merge dated as of
July 14, 1998. The merger is expected to be in the form of a tax-free stock
exchange and is subject to, among other things, the completion of due diligence
and approval by the disinterested shareholders of both companies. The merger is
expected to close within 120-180 days. In the interim, HALIS and HealthWatch, an
information technology company, are working together to provide HALIS' software
and services to the HealthWatch customer base. Paul W. Harrison and Larry
Fisher, who are directors and the Chairman and Chief Executive Officer and the
Executive Vice President of the Company, respectively, serve as directors of
HealthWatch and as of July 31, 1998 beneficially own approximately 44% of
HealthWatch's common stock. Mr. Harrison, who beneficially owns 31% of the
Company's common stock, also serves as Chairman of HealthWatch. Mr. Fisher
beneficially owns 7% of the Company's common stock. Copies of the Letter of
Intent to Merge and the Company's press release announcing its execution are
attached hereto as Exhibits 99.1. and 99.2, respectively.
HealthWatch recently announced its intent to acquire Paul Harrison
Enterprises, Inc., ("PHE"), which is controlled by the Chairman and Chief
Executive Officer of the Company. Mr. Harrison serves as the President of PHE
and beneficially owns approximately 40% of this company. On November 18, 1996,
the Company entered into a license to a proprietary application software utility
("MERAD") from PHE. The Company is obligated to pay a license fee equal to 10%
of the gross revenues generated from MERAD and any derivations thereof by the
Company or any of its affiliates. In addition, the Company is obligated to pay
MERAD Corporation, a PHE subsidiary, a development fee of $15,000 per month
pursuant to a license and software development agreement between MERAD
Corporation and HALIS Software, Inc., a company purchased by the Company in
November 1996. Mr. Harrison serves as President and is a 21% shareholder of
MERAD Corporation. During 1996 and 1997, $90,000 and $180,000, respectively, was
paid to MERAD Corporation for specific enhancements and maintenance required by
the Company. MERAD has been used to develop software for HALIS and HealthWatch.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION
Total assets at June 30, 1998 were $5,614,879, a decrease of $387,020
from total assets of $6,001,899 at March 31, 1998. This decrease is primarily
attributable to a reduction in cash resulting from the negative cash flow for
the quarter. This negative cash flow is largely attributable to higher selling,
general, and administrative expenses.
11
<PAGE> 11
Current liabilities increased from $3,807,431 at March 31, 1998 to
$4,510,764 at June 30, 1998. This increase of $703,333 is largely attributable
to a $425,435 increase in accounts payable and accrued expenses, a $164,427
increase in deferred revenue and customer deposits, and a $235,971 increase in
other current liabilities during the three months ended June 30, 1998.
Stockholder's equity decreased from $2,095,295 to $1,044,873, a
decrease of $1,050,422. This difference is attributable to an operating loss
during the period, offset by the issuance of 3,648,774 shares of common stock
upon the conversion of convertible debentures during the three months ended June
30, 1998.
RESULTS OF OPERATIONS
Sales revenue decreased by $187,303 and increased by $683,442 for the
three month and six month periods ended June 30, 1998 as compared to the
applicable prior year periods. These changes are primarily the result of the net
impact of the Company's acquisition and divestiture activity since January 1,
1997.
Cost of goods sold decreased $428,956 and $354,392 for the three month
and six month periods ended June 30, 1998 as compared to the applicable prior
year periods. As a percentage of sales revenue, cost of goods sold were 25.7%
and 42.4% for the three months ended June 30, 1998 and June 30, 1997,
respectively. As a percentage of sales revenue, cost of goods sold were 24.4%
and 38.8% for the six months ended June 30, 1998 and June 30, 1997,
respectively. This decrease as a percentage of revenue is largely attributable
to the shift in revenue mix towards more service revenue and fewer lower margin
hardware sales.
Selling, general and administrative expenses increased by $867,616 and
$2,493,222 for the three month and six month periods ended June 30, 1998 as
compared to the applicable prior year periods. This increase resulted from the
net impact of the Company's acquisition and divestiture activity during the year
ended December 31, 1997, as well as the Company's investment in its corporate
infrastructure to support future growth. Included in selling, general and
administrative expenses is amortization and depreciation expense of $540,835 and
$688,056 for the six months ended June 30, 1998 and June 30, 1997, respectively.
Research and development costs decreased by a total of $220,514 and
$271,790 for the three month and six month periods ended June 30, 1998 as
compared to the applicable prior year periods. These reductions reflect the
Company's divestiture of certain software assets and associated development
overhead since June 30, 1997.
The net losses of $1,412,047 and $3,091,977 for the three month and six
month periods ended June 30, 1998 are primarily attributable to increased
selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 1998, operating activities
consumed $2,063,939 of cash, primarily due to the net loss of $3,091,977 for the
six month period ended June 30, 1998. As discussed in the previous section, the
primary reasons for the net losses are the selling, general and administrative
expenses and research and development expenses incurred to fund the corporate
infrastructure development, as well as the ongoing investment in the Company's
proprietary software products.
12
<PAGE> 12
The Company recorded a net decrease in cash of $1,152,287 during the
six months ended June 30, 1998, offsetting the operational losses with proceeds
from private placements of convertible debentures that were converted into the
Company's Common Stock. Management continues to seek and evaluate potential
sources of additional capital to support the Company's expected future growth.
Financing activities during the six months ended June 30, 1998 provided
$927,130, primarily from the issuance of convertible debentures and their
subsequent conversion to the Company's Common Stock.
During January 1998 the Company received funds from the sale of 4%
Convertible Debentures and certain warrants to non-U.S. Persons with the
assistance of GEM Advisors, Inc. acting as a placement agent. These Debentures
were convertible into the Company's Common Stock at a fixed conversion price of
$0.61 per share or a variable conversion price (65% of the bid price average for
the 10 trading days preceding the day prior to the conversion date). The Company
also issued 100,000 warrants with an exercise price of $0.60 per share. The
consideration received by the Company for the Debentures was $100,000 in cash
less certain expenses, including 9% of the aggregate proceeds to GEM Advisors,
Inc. The offers and sales of the 4% Convertible Debentures and related warrants
were made pursuant to a claim of exemption under rules 901 and 903 of Regulation
S promulgated by the Securities Act of 1933, as amended.
During the three months ended March 31, 1998, the holders of all
$300,000 of the 4% Convertible Debentures elected to convert their investment
into the Company's Common Stock. As a result, the Company issued an aggregate of
1,267,497 shares of Common Stock in full satisfaction of principal and accrued
interest owed to the holders.
In response to the decline in price of the Company's Common Stock, the
Company offered the holders of the remaining $500,000 of Company's 7%
Convertible Promissory Notes, due January 15, 1998, 125,000 additional shares of
Common Stock to encourage them to execute their conversion option prior to
January 15, 1998. Holders of $210,000 of the Notes accepted the offer as of
January 15, 1998, resulting in the Company issuing 52,500 additional shares of
Common Stock. The additional shares had the effect of increasing the ratio of
shares issued to debt retired from 1:1 to 1.25:1. As an equitable adjustment
believed by the Board of Directors to be in the Company's best interest and for
fair consideration in light of all the facts and circumstances, the holders of
$1,006,000 of the Notes that had exercised their conversion option on or before
September 30, 1997 were issued 251,500 additional shares on January 20, 1998.
The Company issued 358,000 additional shares of Common Stock in
February 1998 to purchasers who had purchased Common Stock in a private
placement completed in September 1997. These shares were issued in exchange for
a waiver of recission rights and as an equitable adjustment to such private
placement based on careful consideration by the Company's Board of Directors of
all the facts and circumstances.
On January 15, 1998, the maturity date of the 7% Convertible Promissory
Notes, $190,000 was retired and $100,000 was converted into newly issued 10%
Convertible Notes. The 10% Convertible Notes are convertible into the Company's
Common Stock at a variable conversion price equal to 80% of the average closing
bid price for the 10 trading days preceding the day prior to the conversion
date.
During the three months ended March 31, 1998, the holders of $50,000 of
the 10% Convertible Debentures elected to convert their investment into the
Company's Common Stock.
13
<PAGE> 13
As a result, the Company issued an aggregate of 163,506 shares of Common Stock
in full satisfaction of principal and accrued interest owed to such holders.
Through a private placement of 6% Convertible Debentures the Company
raised $758,000 during the three months ended March 31, 1998. The holders of the
6% Convertible Debentures elected to convert their investment into the Company's
Common Stock immediately, and the Company issued an aggregate of 4,933,333
shares of Common Stock in full satisfaction of principal and accrued interest
owed to such holders.
During the three months ended June 30, 1998, the Company raised an
additional $511,200 through a private placement of the 6% Convertible Debentures
described above. The holders of these 6% Convertible Debentures elected to
convert their investment into the Company's Common Stock immediately, resulting
in the Company issuing an aggregate of 3,648,774 shares of Common Stock in full
satisfaction of principal and accrued interest owed to such holders.
Subsequent to June 30, 1998, the Company raised an additional $236,000
through a private placement of the 6% Convertible Debentures described above.
The holders of these 6% Convertible Debentures elected to convert their
investment into the Company's Common Stock immediately, resulting in the Company
issuing an aggregate of 1,748,147 shares of Common Stock in full satisfaction of
principal and accrued interest owed to such holders.
During March 1998 a manager of the Company's PRN business unit extended
a $40,000 unsecured, demand loan to the Company. This loan is evidenced by a
promissory note with interest of 10% payable together with principal at
maturity.
The Company will require additional capital or other financing to
finance its operations and future growth. There can be no assurance that the
Company will be able to obtain such financing if and when needed, or that if
obtained, it will be sufficient or on terms and conditions acceptable to the
Company.
Because of the Company's limited cash flow, the Company negotiated
payment terms of up to six months for approximately $490,000 of accounts payable
during the three months ended March 31, 1998. During April 1998, the Company
requested a one month delay in the payment of approximately $75,000 related to
these payment plans. The scheduled payments were paid in full during May, and
approximately 50% and 25% of the scheduled payments were made during June and
July, respectively. The outstanding amount of total payment plans as of July 31,
1998 was approximately $516,000, reflecting additional negotiations with
vendors.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
and Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and objectives
of the Company for future operations. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. The Company's plans and objectives are based on the assumption
that the Company's entry into the healthcare industry will be successful, that
competitive conditions within the healthcare industry will not change materially
or adversely, and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the
14
<PAGE> 14
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, as well as future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements included
herein are reasonable, the inclusion of such information should not be regarded
as a representation by the Company, or any other person, that the objectives and
plans of the Company will be achieved.
15
<PAGE> 15
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three months ended June 30, 1998, the Company raised
$511,200 through a private placement of the 6% Convertible Debentures. The
holders of these 6% Convertible Debentures elected to convert their investment
into the Company's Common Stock immediately, resulting in the Company issuing an
aggregate of 3,648,774 shares of Common Stock in full satisfaction of principal
and accrued interest owed to such holders.
Subsequent to June 30, 1998, the Company raised an additional $236,000
through a private placement of the 6% Convertible Debentures described above.
The holders of these 6% Convertible Debentures elected to convert their
investment into the Company's Common Stock immediately, resulting in the Company
issuing an aggregate of 1,748,147 shares of Common Stock in full satisfaction of
principal and accrued interest owed to such holders.
The issuance of securities described above were made in reliance on the
exemption from registration provided by Section 3(b) and/or 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation, the
certificates bear restrictive legends and appropriate stop transfer instructions
have been or will be given to the transfer agent. Except as described above, no
underwriter was involved in the transaction and no commissions were paid.
ITEM 5. OTHER INFORMATION
On July 31, 1998, the Company and HealthWatch, Inc. ("HealthWatch")
(NASDAQ: HEAL) announced the signing of a Letter of Intent to Merge dated as of
July 14, 1998. The merger is expected to be in the form of a tax-free stock
exchange and is subject to, among other things, the completion of due diligence
and approval by the disinterested shareholders of both companies. The merger is
expected to close within 120-180 days. In the interim, HALIS and HealthWatch, an
information technology company, are working together to provide HALIS' software
and services to the HealthWatch customer base. Paul W. Harrison and Larry
Fisher, who are directors and the Chairman and Chief Executive Officer and the
Executive Vice President of the Company, respectively, serve as directors of
HealthWatch and as of July 31, 1998 beneficially own approximately 44% of
HealthWatch's common stock. Mr. Harrison, who beneficially owns 31% of the
Company's common stock, also serves as Chairman of HealthWatch. Mr. Fisher
beneficially owns 7% of the Company's common stock. Copies of the Letter of
Intent to Merge and the Company's press release announcing its execution are
attached hereto as Exhibits 99.1. and 99.2, respectively.
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<PAGE> 16
HealthWatch recently announced its intent to acquire Paul Harrison
Enterprises, Inc., ("PHE"), which is controlled by the Chairman and Chief
Executive Officer of the Company. Mr. Harrison serves as the President of PHE
and beneficially owns approximately 40% of this company. On November 18, 1996,
the Company entered into a license to a proprietary application software utility
("MERAD") from PHE. The Company is obligated to pay a license fee equal to 10%
of the gross revenues generated from MERAD and any derivations thereof by the
Company or any of its affiliates. In addition, the Company is obligated to pay
MERAD Corporation, a PHE subsidiary, a development fee of $15,000 per month
pursuant to a license and software development agreement between MERAD
Corporation and HALIS Software, Inc., a company purchased by the Company in
November 1996. Mr. Harrison serves as President and is a 21% shareholder of
MERAD Corporation. During 1996 and 1997, $90,000 and $180,000, respectively, was
paid to MERAD Corporation for specific enhancements and maintenance required by
the Company. MERAD has been used to develop software for HALIS and HealthWatch.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or
incorporated by reference into this report:
3.1 Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-2 (No. 333-45783)
filed February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
on Form S-2 (No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-18, Reg. No. 33-14114-A, filed May
7, 1987, as amended ("Form S-18"))
4.2 Form of 6% Convertible Debenture Subscription Agreement and
Convertible Debenture.
10.01 Agreement and Plan of Merger dated June 25, 1998 among HALIS,
Inc., American Enterprise Solutions, Inc., PRN Acquisition Co.,
and Physicians Resource Network, Inc. (incorporated by reference
to Exhibit 10.24 to the Company's Current Report on Form 8-K
filed July 15, 1998)
27.1 Financial Data Schedule (for SEC use only)
99.1 Letter of Intent to Merge dated as of July 14, 1998 by and
between HALIS, Inc. and HealthWatch, Inc.
99.2 Press release dated July 31, 1998 announcing the signing of a
Letter of Intent to Merge between HALIS, Inc. and HealthWatch,
Inc.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
ended June 30, 1998.
None
17
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALIS, INC.
Dated: August 12, 1998 By: /s/ Paul W. Harrison
-----------------------------------
Paul W. Harrison, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Dated: August 12, 1998 By: /s/ Larry Fisher
-----------------------------------
Larry Fisher, Executive Vice President,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
18
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------
<S> <C>
3.1 Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-2 (No. 333-45783)
filed February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
on Form S-2 (No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-18, Reg. No. 33-14114-A, filed May
7, 1987, as amended ("Form S-18"))
4.2 Form of 6% Convertible Debenture Subscription Agreement and
Convertible Debenture.
10.01 Agreement and Plan of Merger dated June 25, 1998 among HALIS,
Inc., American Enterprise Solutions, Inc., PRN Acquisition Co.,
and Physicians Resource Network, Inc. (incorporated by reference
to Exhibit 10.24 to the Company's Current Report on Form 8-K
filed July 15, 1998)
27.1 Financial Data Schedule (for SEC use only)
99.1 Letter of Intent to Merge dated as of July 14, 1998 by and
between HALIS, Inc. and HealthWatch, Inc.
99.2 Press release dated July 31, 1998 announcing the signing of a
Letter of Intent to Merge between HALIS, Inc. and HealthWatch,
Inc.
</TABLE>
19
<PAGE> 1
Exhibit 4.2
6% CONVERTIBLE DEBENTURE SUBSCRIPTION AGREEMENT
THIS DEBENTURE AND THE COMMON STOCK ("SHARES") ISSUABLE UPON CONVERSION OF THE
DEBENTURE (COLLECTIVELY, THE "SECURITIES") UNDER THIS AGREEMENT HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY ONLY
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IF THESE SECURITIES ARE REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
This Subscription Agreement (the "Agreement"), is entered into by and between
___________________ (referred to herein as "Purchaser"), and HALIS, Inc., a
corporation incorporated under the laws of the State of Georgia (the "Company"),
whose address is 9040 Roswell Road, Suite 470, Atlanta, Georgia 30350, in
connection with the purchase by the Purchaser of a U.S. $__________ convertible
debenture in the form attached hereto as Exhibit "A" ("Debenture").
1. AGREEMENT TO SELL AND PURCHASE; PURCHASE PRICE
The Company hereby sells to Purchaser and the Purchaser hereby purchases from
the Company, the Debenture for an aggregate purchase price of U.S. $_________
(the "Purchase Price"). Concurrently with the Purchaser's execution and delivery
of this Subscription Agreement, Purchaser has initiated a wire transfer to the
Company's (or its agent's) bank account of immediately available funds in the
amount of the Purchase Price in full payment for the Debenture. The Company will
confirm to Purchaser receipt of the wire transfer. Upon receipt of such funds,
and the fully completed and executed Subscription Agreement, the Company shall
deliver to Purchaser the certificate representing the Debenture.
2. INDEPENDENT INVESTIGATIONS; ACCESS
Purchaser, in electing to purchase the Securities hereunder, has relied upon the
independent investigation made by it and its representatives, if any, and has
made such investigation of the business and financial condition of the Company
as it has deemed appropriate under the circumstances. Purchaser acknowledges
receipt of the Private Placement Memorandum dated February ___, 1998 (the
"Memorandum") and further acknowledges that he has been afforded (i) the
opportunity to ask such questions as he has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities:
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment
1
<PAGE> 2
decision with respect to the Securities and to verify the accuracy and
completeness of the information contained in the Memorandum.
3. REPRESENTATION, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents, warrants and Covenants to Purchaser as follows:
The Company is duly incorporated, validly existing, and in good standing
under the laws of the State of Georgia.
The Debenture, and the shares of common stock ("Shares") to be delivered to
the Purchaser upon conversion of the Debenture, will be validly issued, fully
paid and non-assessable, and, when issued in accordance with the terms of the
Debenture and this Agreement, will comply in all respects with applicable United
States and State of Georgia laws and regulations relating to the issuance of the
Debenture and the Shares, as applicable.
This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity and public
policy; and the Company has full corporate power and authority necessary to
enter into this Agreement and to perform its obligations hereunder.
Subject to compliance with all applicable securities laws, no consent,
approval, authorization or order of any court, governmental agency or body or
arbitrator having jurisdiction over the Company or any of its affiliates is
required for execution of this Agreement or the performance of its obligations
hereunder, including, without limitation, the sale of the Debenture and the
Shares, as applicable, to the Purchaser.
4. REPRESENTATION AND WARRANTIES BY PURCHASER
The Purchaser represents and warrants to, and agrees with, the Company that:
A. This Agreement has been duly authorized, executed and delivered by
the Purchaser and is a valid and binding agreement enforceable against Purchaser
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity; and the Purchaser has full power and authority necessary to enter
into this Agreement and to perform its obligations hereunder.
B. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Purchaser
is required for execution of this Agreement or the performance of the
Purchaser's obligations hereunder, including, without limitation, the purchase
of the Debenture.
C. The Purchaser understands that no federal or state agency or similar
agency of any other country has passed on or made any recommendation or
endorsement of the Debentures, the Shares or this transaction.
D. The Purchaser acknowledges that, in making the decision to purchase
the Debenture, it has relied solely upon independent investigations, if any,
made by it and not upon any
2
<PAGE> 3
representations made by the Company with respect to the Company or the Debenture
other than those expressly stated herein. In addition to receipt of the
Memorandum, the Purchaser acknowledges access via the Securities and Exchange
Commission's EDGAR database to the following documents, which have been filed
with the SEC on the dates indicated: Form 10-KSB filed April 15, 1997; Form
8-K/A filed April 16, 1997; Form 8-K filed May 15, 1997; Form 10-QSB filed May
20, 1997; Form 8-K filed July 14, 1997; Form 8-K/A filed July 17, 1997; Form 8-K
filed August 13, 1997; Form 10-QSB filed August 14, 1997; Form S-2 filed August
22, 1997; Form S-2/A filed August 29, 1997; Form 8-K/A filed September 19, 1997;
Post Effective Amendment filed October 7, 1997; Form 8-K/A filed October 14,
1997; Post Effective Amendment filed October 15, 1997; Form 10-QSB filed
November 12, 1997; and Schedule 14 filed November 20, 1997; and Forms 8-K filed
January 12, 13 and 15, 1998; and Form S-2 filed February 13, 1998.
E. Purchaser has such knowledge and experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in the Debenture and determining the suitability of its investment.
The Purchaser is an "accredited investor," as defined in Rule 501 of Regulation
D promulgated under the Act ("Accredited Investor") (e.g., any natural person
whose individual net worth, or joint net worth with that person's spouse, at the
time of his purchase exceeds $1,000,000; any natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same income level in the
current year).
F. The Purchaser understands that the Debenture is being offered and
sold to it by the Company in reliance upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein.
G. Purchaser understands that Purchaser must bear the economic risk of
this investment indefinitely unless sale of such Debenture or Shares is
registered pursuant to the Act, or an exemption from such registration is
available, and that the Company will not register the Shares or the Debenture
under the Act or any states securities law.
H. Purchaser has reviewed with his, her or its own tax advisors the
federal, state and local tax consequences of this investment, where applicable,
and the transactions contemplated by this Agreement. Purchaser is relying solely
on such advisors and not on any statements or representations of the Company or
any of its agents and understands that Purchaser (and not the Company) shall be
responsible for the Purchaser's own tax liability that may arise as a result of
this investment or the transactions contemplated by this Agreement.
I. Purchaser acknowledges that it has had the opportunity to review
this Agreement and the transactions contemplated by this Agreement with its own
legal counsel. Purchaser is relying solely on such counsel and not on any
statements or representations of the Company or any of its agents for legal
advice with respect to this investment or the transactions contemplated by this
Agreement, except for the representations, warranties and covenants set forth
herein.
J. PURCHASER UNDERSTANDS THAT THE DEBENTURES AND THE UNDERLYING COMMON
STOCK INTO WHICH THEY ARE CONVERTIBLE INVOLVE A HIGH DEGREE OF RISK AND MAY
INVOLVE THE LOSS OF THE PURCHASER'S ENTIRE INVESTMENT. Purchaser represents that
it is able to bear such risk and has adequate means to meet all of Purchaser's
needs and obligations. In making its investment decision, the Purchaser is not
relying on any oral or written representations or assurances either from the
Company or any other person or any representations of the Company or any other
person other than as set forth in this Agreement or in public filings of the
Company.
3
<PAGE> 4
K. Purchaser acknowledges that it is not purchasing the Debenture as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to you in
connection with investments in securities generally.
5. FEES AND EXPENSES
Each of the Purchaser and the Company agrees to pay its own expenses incident to
the performance of its obligations hereunder, including, but not limited to, the
fees, expenses and disbursements of such party's respective legal counsel.
6. NOTICES
All communications hereunder shall be in writing, and if sent to the Purchaser
shall be sufficient in all respects if delivered or sent by registered mail or
by telecopy and confirmed to the Purchaser at __________________________________
_____, or if sent to the Company, shall be delivered, sent by registered mail or
by telecopy at 770-641-5559, and confirmed to the Company at HALIS, Inc., 9040
Roswell Road, Suite 470, Atlanta, Georgia 30350, Attn: Paul W. Harrison, Chief
Executive Officer.
7. MISCELLANEOUS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original. Facsimile signatures of the parties on this
Agreement shall be binding on all parties hereto.
8. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the laws
of the United States and the State of Georgia without regard to its conflicts of
laws rules.
9. SUBORDINATION OF DEBENTURES
Any right of the Purchaser to payment of principal or interest from the Company
under the Debenture shall be subordinated to the claims and rights of the
holders of the Senior Debt ("Senior Debt Holders"). "Senior Debt" means the
indebtedness of the Company incurred in connection with: (1) all existing and
future secured financing and all existing and future unsecured institutional
financing, including without limitation, financing from banks, savings and
loans, mortgage companies, financing companies, insurance companies,
governmental agencies and/or any other institution which is engaged in whole or
in part in making loans in the ordinary course of its business, and (2) all
future purchase money financing which is secured by an encumbrance against all
or any portion of the properties and/or assets of the Company, and (3) any
refinancing of the type of indebtedness referred to in (1) and (2) above. Any
payment of principal or interest to the Purchaser shall be collected, enforced
or received by the Purchaser as trustee for the Senior Debt Holders and paid
over to the Senior Debt Holders. The Purchaser agrees that in the event of any
payment of principal or interest by the Company to the Purchaser by reason of
any receivership, insolvency or bankruptcy proceeding, or proceeding for
reorganization or readjustment of the Company or its properties, or otherwise,
then, in any such event, the Senior Debt Holders shall be preferred in the
payment of their claims over the claim of the Purchaser-to payment of principal
or interest against the Company or its properties, and the claims of the Senior
Debt Holders shall be
4
<PAGE> 5
first paid and satisfied in full before any payment or distribution of any kind
or character, whether in cash, property or securities, shall be made to the
Purchaser. Provided, however, that this Section 9 shall not apply to any payment
of principal or interest made to the Purchaser while the Company is solvent or
not in default with respect to its Senior Debt.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this 6% Convertible Debenture Subscription Agreement, all as of the day and year
written below.
HALIS, INC.
By:
-------------------------------
Title:
----------------------------
PURCHASER:
By:
------------------------------
Title:
----------------------------
Dated: ________, 1998
5
<PAGE> 6
EXHIBIT A
DEBENTURE
THIS DEBENTURE AND THE COMMON STOCK ("SHARES") ISSUABLE UPON CONVERSION OF THIS
DEBENTURE (COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY ONLY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IF THESE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
Debenture Certificate No. _____ U.S.
$________________
Date: ___________, 1998
HALIS, INC.
6% CONVERTIBLE DEBENTURE DUE FEBRUARY 28, 2000
FOR VALUE RECEIVED, HALIS, Inc., a Georgia corporation (the "Company"),
promises to pay to ____________________________ ("Purchaser"), or any subsequent
registered holder hereof (the "Holder"), the principal sum of _______________
U.S. Dollars (U.S. $____________), together with interest on the principal sum
outstanding at the rate of six (6%) percent per annum, payable in U.S. Dollars,
under the terms and conditions set forth below. Accrual of interest on this
Debenture shall commence on the date hereof and shall continue to accrue until
the Maturity Date or if earlier, the Conversion Date or Redemption Date, as the
case may be. This Debenture is being issued pursuant to the 6% Convertible
Debenture Subscription Agreement between the Holder and the Company
("Subscription Agreement"), and this Debenture is subject to all of the terms
and conditions thereof, all of which are hereby incorporated by reference.
SECTION 1. PAYMENT OF DEBENTURE. Subject to all of the terms and conditions
hereof, the Company shall pay to the Holder the entire outstanding amount of
principal and interest hereof, on February 28, 2000 (the "Maturity Date"). All
interest or principal shall be paid to the person and at the address in whose
name this Debenture is registered on the records of the Company on the
applicable payment date. As provided herein, the principal and interest due
hereunder may be converted into or redeemed for shares of Common Stock, par
value of $.01 per share, of the Company ("Shares"), and such Shares shall be in
the name of and forwarded to the person and at the address in whose name this
Debenture is registered on the issuance date.
SECTION 2. SALE, TRANSFER OR EXCHANGE. This Debenture may be transferred,
exchanged or converted only in compliance with the Act and any applicable state
securities laws. Any Holder of this Debenture, by acceptance hereof, agrees to
the representations, warranties and covenants herein and in the Subscription
Agreement. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly recorded on the Company's records as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes.
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<PAGE> 7
SECTION 3. HOLDER CONVERSION.
A. Right to Convert; Conversion Rate. The Holder of this Debenture shall be
entitled to convert the entire principal amount and accrued but unpaid interest
of this Debenture at any time on or before the Maturity Date into that number of
Shares calculated in accordance with the following formula:
Number of Shares issued upon Conversion = Principal (+ Interest, if
applicable)/Conversion Price, where
Principal = The Principal amount of the Debenture,
Interest = accrued but unpaid interest hereunder
Conversion Price = at the Purchaser's option: (i) 65% of the Closing Bid
Price, as that term is defined below, of the Shares on the date of purchase of
the Debenture (the "Fixed Conversion Price"); or .(ii) 65% of the average
Closing Bid Price, as that term is defined below, of the Shares for the ten (10)
trading days immediately preceding the day prior to the Conversion Date (the
"Variable Conversion Price"). Option (i) must be exercised by the Purchaser, if
at all, on or before March ___, 1998. Thereafter, any conversion of the
Debenture shall be made only by reference to option (ii), above.
For purposes hereof, the term "Closing Bid Price" shall mean the closing bid
price on the market as reported by the OTC Bulletin Board or NASDAQ's National
Market System or Small Capitalization System ("NASDAQ") or American Exchange
Emerging Company Marketplace or if then traded on a different national
securities exchange, the closing sales price on the principal national
securities exchange on which it is so traded and, if not available, the mean of
the daily high and low sales prices on such securities exchange on which it is
traded.
B. Mechanics of Conversion. In order to convert the Debenture into Shares,
the Holder shall (i) fax a copy of an executed notice of conversion ("Notice of
Conversion") to the Company at the office of the Company, which notice shall
specify that the Debenture shall be converted and shall contain a calculation of
the number of Shares to be issued in connection with the conversion, and (ii)
surrender the original Debenture to a common courier for delivery to the office
of the Company within three (3) business days of the Notice of Conversion;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the Shares issuable upon such conversion unless either the original
Debenture is delivered to the Company or the Holder notifies the Company that
such Debenture has been lost, stolen or destroyed and the Holder has complied
with Section 3.C. below. Upon receipt by the Company of a facsimile copy of a
Notice of Conversion, the Company shall immediately send, via facsimile,
confirmation of receipt of the Notice of Conversion to Holder which shall
specify that the Notice of Conversion has been received and the name of a
contact person at the Company whom the Holder should contact regarding
information related to the conversion. In the case of a dispute as to the
calculation of the Conversion Price or any other issues related thereto, the
Company shall promptly issue the number of Shares that are not disputed. The
Company shall submit the disputed calculations to its independent auditors
within two (2) business days of receipt of Holder's Notice of Conversion. The
Company shall cause the auditors to perform the calculations and notify the
Company and Holder of the results no later than five (5) business days from the
time such accountant receives the disputed calculations. The auditor's
calculation shall be deemed conclusive absent manifest error.
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<PAGE> 8
C. Lost or Stolen Debentures. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of this Debenture, and (in case of
loss, theft or destruction) indemnity or security reasonably satisfactory to the
Company, and upon surrender and cancellation of the Debenture, if mutilated, the
Company shall execute and deliver a new Debenture of like tenor and date without
charge to Holder.
D. Delivery of Shares upon Conversion. The transfer agent or the Company (as
applicable) shall, no later than the close of business on the tenth (10th)
business day after delivery to the Company of the Debenture to be converted (or
after provision for security or indemnification, if required), issue a
certificate for the number of Shares to which the Holder shall be entitled as
aforesaid and surrender such original certificate to a common courier for
overnight delivery to the Holder at the address of the Holder on the books of
the Company.
E. No Fractional Shares. No fractional Shares shall be issued upon
conversion of this Debenture. If any conversion of the Debenture would create a
fractional share or a right to acquire a fractional share, such fractional
shares, on an aggregate basis, shall be disregarded and the number of Shares
issuable upon conversion shall be, on an aggregate basis, the next lower number
of whole shares.
F. Date of Conversion. The date on which conversion occurs (the
"Conversion Date") shall be deemed to be the date (utilizing Atlanta, Georgia
time) the Notice of Conversion is faxed to the Company, and, provided, that the
original Debenture is surrendered by depositing such Debenture with a common
courier, as provided above, and received by the Company within three (3)
business days from the Conversion Date. The person or persons entitled to
receive the Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Shares on the Conversion Date.
If the original Debenture is not received by the Company within three (3)
business days after the Conversion Date, the Notice of Conversion, at the
Company's option, may be declared null and void.
SECTION 4. RESERVATION OF SHARES ISSUABLE UPON CONVERSION OR REDEMPTION. The
Company shall at all times reserve and keep available out of its unissued
Shares, solely for the purpose of effecting the conversion or redemption of the
entire principal amount of this Debenture, such number of its Shares as shall
from time to time be sufficient to effect the conversion or redemption of this
Debenture.
SECTION 5. ADJUSTMENT TO CONVERSION PRICE.
A. Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
Etc. If at any time when the Debenture is issued and outstanding, the number of
outstanding Shares is increased by a stock split, stock dividend, or other
similar event, the Conversion Price shall be proportionately reduced, or if the
number of outstanding Shares is decreased by a combination or reclassification
of shares, or other similar event, the Conversion Price shall be proportionately
increased.
B. Adjustment Due to Merger, Consolidation. Etc. If at any time when
the Debenture is issued, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which Shares shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all the Company's assets, then the
Holder shall thereafter have the right to receive upon conversion or redemption
of the Debenture, upon the basis
8
<PAGE> 9
and upon the terms and conditions specified herein and in lieu of the Shares
immediately theretofore issuable upon conversion or redemption, such Common
Stock, securities and/or other assets which the holder would have been entitled
to receive in such transaction had the Debenture been converted and redeemed
immediately prior to such transaction, and in such case appropriate provisions
shall be made with respect to the rights and interests of the Holders to the end
that the provisions hereof (including, without limitation provisions for
adjustment of the Conversion Price and of the number of Shares issuable upon
conversion or redemption of the Debenture) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 5.B unless it first gives not less than
fifteen (15) days prior notice of such merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event (during which
time the Holder shall be entitled to convert its Debentures into Shares).
SECTION 6. EXERCISE. The Holder hereof acknowledges that neither the Debenture
nor the Shares have been registered under the Act or under any state securities
law. In addition, the certificates representing the Shares shall contain such
legends, or restrictive legends, or be subject to such stop transfer
instructions, as shall be required by applicable Federal or state securities
laws, or as shall be reasonably required by the Company or its transfer agent.
SECTION 7. NO VOTING RIGHTS. Except as specifically provided herein, this
Debenture shall not entitle the Holder hereof to any of the rights of a
stockholder of the Company, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company.
SECTION 8. STATUS OF CONVERTED DEBENTURES. Upon the first to occur of the
Conversion Date, Redemption Date, or Maturity Date, as the case may be, this
Debenture shall no longer be deemed to be outstanding and all rights hereof,
shall forthwith terminate as of such date except only the right of the Holder
hereof to receive Shares in exchange for such Debenture and, if applicable, a
cash payment of any accrued interest.
SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of and during the
continuation of an Event of Default (as defined below), the Company shall pay to
the Holder an amount equal to the sum of (x) the unpaid principal amount of this
Debenture plus (y) the accrued and unpaid interest on the unpaid principal
amount of this Debenture to the date of payment, and such amounts shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, reasonable legal fees and expenses of collection, and the
Holder shall be entitled to exercise all other rights and remedies available at
law or equity.
The Company shall be required promptly upon its knowledge of an Event of
Default hereunder to give notice of such Event of Default to the Holder hereof.
An "Event of Default" shall mean the following:
A. Conversion. If the Company fails to issue Shares to Holder upon
conversion of this Debenture by the Holder in accordance with the terms of this
Debenture, fails to transfer any certificate for Shares issued to the Holder
upon conversion of this Debenture and when required by this Debenture, or fails
to remove any restrictive legend on any certificate or any stop transfer order
on any Shares issued to the Holder upon conversion of this Debenture as and when
required in accordance with applicable law and by this Debenture or any
Subscription Agreement by and
9
<PAGE> 10
between Company and Holder, and any such failure shall continue uncured for five
(5) business days;
B. Breach of Covenant. If the Company fails to pay when due amounts
owed hereunder (including principal and interest) or breaches any material term
or condition of this Debenture (other than as specifically provided in
subsection 9-A. hereof), or any Subscription Agreement by and between Company
and Holder (including, subject to Section 4 hereof, the failure to have enough
Shares available for issuance upon conversion), the breach of which would have a
material adverse effect on the Company or the prospects of the Company or a
material adverse effect on the Holder or the rights of the Holder with respect
to this Debenture or the Shares issuable upon conversion of this Debenture, and
such breach continues for a period of five (5) business days after written
notice thereof to the Company from the Holder;
C. Breach of Representation. Any representation or warranty of the
Company made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, any Subscription Agreement by and between Company and Holder), shall
be false or misleading in any material respect when made and the breach of which
would have a material adverse effect on the Company or the prospects of the
Company or a material adverse effect on the Holder or the rights of the Holder
with respect to this Debenture or the Shares issuable upon conversion of this
Debenture;
SECTION 10. GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the United States and the State of Georgia without
giving effect to the principles of conflicts of laws.
SECTION 11. BUSINESS DAY DEFINITION. For purposes hereof, the term "business
day" shall mean any day on which banks are generally open for business in the
State of Georgia, USA excluding any Saturday and Sunday.
SECTION 12. NOTICES. Any notices or other communication required or permitted
to be given hereunder shall be given as provided herein or delivered against
receipt, if to (i) the Company at 9040 Roswell Road, Suite 470, Atlanta, Georgia
30350, Attn.: Paul W. Harrison, Chief Executive Officer, Telephone No. (770)
641-5555, Telecopy No. (770) 641-5558; or (ii) the Holder of this Debenture, to
such holder at _______________________________________________(or to such other
address as the party shall have furnished in writing as its new address in
accordance with the provisions of this Section 12). Any notice or other
communication may be made by facsimile and delivery shall be deemed given,
except as otherwise required herein, at the time of transmission of said
facsimile. Any notice given on a day that is not a business day shall be
effective upon the next business day.
SECTION 13. WAIVER OF ANY BREACH TO BE IN WRITING. Any waiver by the Company or
the Holder hereof of a breach of any provision of the Debenture shall not
operate as, or be construed to be, a waiver of any breach of such provision or
any breach of any other provision of the Debenture. The failure of the Company
or the Holder hereof to insist upon strict adherence to any term of the
Debenture on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any term of the Debenture. Any waiver must be in writing.
SECTION 14. UNENFORCEABLE PROVISIONS. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is
10
<PAGE> 11
applicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
SECTION 15. INCIDENTAL REGISTRATION.
If, at any time after February 28, 1998 the Company proposes to register any
of its equity securities under the 1933 Act, whether or not for sale for its own
account, on a form and in a manner which would permit registration of the Common
Shares for sale to the public under the 1933 Act, it will give prompt written
notice to Holder of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration (including the date by which Holder must give notice
hereunder of your intention to exercise your right to include Shares in any such
registration), and upon the written request of Holder delivered to the Company
within 5 business days after the giving of any such notice (which request shall
specify the Shares intended to be disposed of by Holder and the intended method
or methods of disposition thereof), the Company will use its reasonable efforts
to effect the registration under the 1933 Act of all Shares which Holder has so
requested to be registered to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Shares so to
be registered, provided that:
(i) if, at any time after giving such written notice of your intention to
register any of your securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to Holder and
thereupon shall be relieved of its obligation to register any Shares in
connection with such registration; provided, to the extent Holder has exercised
its conversion rights hereunder in response to notice of the Company's proposal
to register equity securities under the 1933 Act and the Company later
determines that no such registration shall not occur, Holder may rescind such
exercise, return the shares received upon such conversion, and regain its rights
under this Debenture as if no such conversion had taken place; provided further,
that Holder gives the Company written notice within five business days of
Holder's receipt of notice from the Company that no such registration will
occur.
(ii) if (A) the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not for
sale for the account of the Company, to be distributed by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction (to which Holder will also be bound), (B) the Company
proposes that the securities to be registered in such underwritten offering will
include all of the Shares requested to be so included, and (C) the managing
underwriter of such underwritten offering shall advise the Company in writing
that, in its opinion, the distribution of all or a specified portion of such
Shares concurrently with the securities being distributed by such underwriters
will materially and adversely affect the distribution of such securities by such
underwriters (such opinion to state the reasons therefor), then the Company will
promptly furnish Holder with a copy of such opinion and may require, by written
notice to Holder accompanying such opinion, that all or a specified portion of
such Shares be excluded from such distribution; and
(iii) The Company shall not be obligated to effect any registration of
Shares under this Section 15 incidental to the registration of any of its
securities in connection with mergers, acquisitions, exchange offers, dividend
reinvestment plans or stock option or other employee benefit plans or incidental
to the registration of any non-equity securities convertible into equity
securities.
11
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer hereunto duly authorized.
HALIS, INC.
By:
----------------------------------
Title:
-------------------------------
Dated: _______________, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HALIS, INC. FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,522
<SECURITIES> 0
<RECEIVABLES> 1,100,346
<ALLOWANCES> 328,815
<INVENTORY> 0
<CURRENT-ASSETS> 1,521,303
<PP&E> 945,284
<DEPRECIATION> 278,385
<TOTAL-ASSETS> 5,614,879
<CURRENT-LIABILITIES> 4,510,764
<BONDS> 0
0
0
<COMMON> 548,748
<OTHER-SE> 496,125
<TOTAL-LIABILITY-AND-EQUITY> 5,614,879
<SALES> 4,289,368
<TOTAL-REVENUES> 4,289,368
<CGS> 1,044,672
<TOTAL-COSTS> 7,354,211
<OTHER-EXPENSES> (7,076)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,210
<INCOME-PRETAX> (3,091,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,091,977)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<PAGE> 1
Exhibit 99.1
HEALTHWATCH, INC.
2445 CADES WAY
VISTA, CA 92083
July 14, 1998
Larry Fisher, Executive Vice President
HALIS, Inc.
9040 Roswell Road, Suite 470
Atlanta, GA 30350
Dear Larry:
HealthWatch is pleased to submit this letter of intent for the
acquisition of HALIS, Inc., ("HALIS") by HealthWatch, Inc. ("HealthWatch"),
pursuant to a merger of HALIS into a wholly owned subsidiary of HealthWatch (the
"Merger"). The Merger will be made in accordance with the terms of a mutually
acceptable definitive merger agreement between HALIS and HealthWatch (the
"Merger Agreement").
1. MERGER CONSIDERATION. It is expected that at the closing, which is
anticipated to be within 120 days of the execution of this Agreement, or on an
alternative mutually agreeable date, HALIS will be merged into a subsidiary of
HealthWatch, and HealthWatch will issue sufficient shares of its common and
preferred stock to equal the "Fair Market Value" of 100% of HALIS' issued and
outstanding shares of common stock. Fair Market Value of both the HALIS and
HealthWatch stock shall be calculated by averaging the closing bid price of each
company's common stock for the period beginning May 26, 1998 and ending July 13,
1998.
The exact form of the transaction will be determined before closing based on
advice from the appropriate legal and financial parties of both HALIS and
HealthWatch, however it is anticipated that HealthWatch will issue a combination
of common and preferred shares to HALIS according to the following formula:
(a) Based on the share prices above, the relative value of each
HealthWatch share to each HALIS share is calculated to be 3.4
to 1. Therefore, for every 3.4 shares of HALIS stock
exchanged, the HALIS shareholder will receive one share of
HealthWatch stock.
(b) 33 1/3 % of the total number of HealthWatch shares to be
issued will be issued as common shares and 66 2/3 % of the
total number of HealthWatch shares to be issued will be issued
as preferred shares. Said preferred shares shall be
convertible into common shares according to mutually agreed
terms and conditions.
2. CERTAIN CONDITIONS. The closing of the proposed transaction
will be conditioned upon:
(a) HealthWatch having the full authority to issue sufficient
shares of its common stock and preferred stock to meet its
obligations set forth in the Merger Agreement;
(b) Paul W. Harrison, Chairman of the Board of Directors of
HealthWatch, being the Chairman of the Board of Directors and
CEO of HealthWatch following the Merger. The remaining
management of both companies will be determined by the Board
of Directors of HealthWatch following the Merger;
1
<PAGE> 2
(c) key senior management, if requested, entering into two-year
employment contracts with appropriate non-competition,
non-solicitation and confidentiality provisions;
(d) the HealthWatch Board of Directors following the Merger being
the current HealthWatch board members plus one HALIS nominee;
(e) HALIS' revenues for the period January 1, 1998 through July 1,
1998 being approximately $4,000,000 or more;
(f) HALIS' EBITDA being in a positive trend for the period July 1,
1998 through December 31, 1998;
(g) HealthWatch being satisfied with the financial condition of
HALIS and upon there having been, from the date of this
Agreement until the date of closing, no material adverse
change in the condition, financial or otherwise of HealthWatch
and its business;
(h) HALIS being satisfied with the financial condition of
HealthWatch and upon there having been, from the date of this
Agreement until the date of closing, no material adverse
change in the condition, financial or otherwise of HealthWatch
and its business;
(i) HealthWatch being satisfied with the results of its due
diligence investigation of the business of HALIS;
(j) HALIS being satisfied with the result of its due diligence
investigation of the business of HealthWatch; and
(k) the approval of the Merger Agreement by the shareholders of
HealthWatch and HALIS.
3. INVESTMENT; BUSINESS COLLABORATION. So long as the parties are
working to complete the Merger, HealthWatch shall loan to HALIS up to a total of
$250,000, such loan to be pursuant to the form of Debenture attached hereto as
Exhibit A, $50,000 of such loan to be made upon HALIS' acceptance of this
proposal, with the balance to be made as mutually agreed, which is expected to
be at the rate of approximately $50,000 per month. Further, HALIS shall provide
services to HealthWatch to further develop the "integration engine" which
HealthWatch and PHE have under development and to provide an interface for
HealthWatch's Life Sciences products and HALIS' Healthcare Enterprise System
("HES") and to assist HealthWatch in marketing HALIS' HES product to
HealthWatch's customer base. For these services, HealthWatch shall pay HALIS
$25,000 per month. HALIS shall provide monthly invoices to HealthWatch
documenting the services provided.
4. INSPECTION PERIOD. After the acceptance of this proposal by
HALIS, each company will on request make available to the other and their
respective Representatives (as defined in paragraph 8 (d) below), and permit a
physical inspection by the other and their respective Representatives of, all
aspects of the other company's business, including the assets, agreements,
financial condition and books and records which relate to its business. Each
company will initiate its due diligence investigation and audit of the other
within thirty (30) business days after HALIS' acceptance of this proposal and,
once initiated, will proceed diligently to complete the same as soon as
practicable.
5. OPERATION OF THE BUSINESS.It shall be a condition to
HealthWatch's obligation to close the Merger that HALIS operate its business in
the normal course from the date hereof through the earlier to occur of the
termination of the obligations under this proposal or the Merger Agreement, as
the case may be, or the date of closing, and not make any material change
therein or enter into any material agreements, incur any material liabilities,
sell any material assets other than inventory in the normal course of business,
issue, redeem, or otherwise sell or purchase any shares of its capital stock or
options or rights to purchase or acquire its capital stock, or distribute to its
shareholders any assets, including cash or cash
2
<PAGE> 3
equivalents, by dividend or otherwise, without the prior written consent of
HealthWatch, which consent shall not be unreasonably withheld.
6. OTHER PROVISIONS. The Merger Agreement will contain usual and
customary representations, warranties, covenants and other agreements on behalf
of HealthWatch and HALIS and the closing will be subject to usual and customary
conditions, including:
(a) obtaining all necessary consents or approvals of governmental
bodies, lessors and other third parties;
(b) absence or disclosure of pending or threatened material
litigation; and
(c) delivery of customary legal opinions, closing certificates,
and other documentation.
7. COST AND EXPENSE. HealthWatch shall bear the costs and
expenses incurred by it and its shareholders in connection with the transactions
contemplated herein and HALIS shall bear the costs and expenses incurred by it
and its shareholders in connection with the transactions contemplated herein,
including any and all finder's fees, selling agent fees, etc.
8. CONFIDENTIALITY.
(a) Each company acknowledges that it and its Representatives
shall from time to time have access to and be provided with
confidential, secret and proprietary information regarding the
business of the other, which may include technical, financial,
and other information. Subject to the provisions of
subparagraph (c) below, any fact or information (whether
furnished or obtained orally or in writing) concerning any
aspect of the business of the other heretofore or hereafter
disclosed to the other or any of the other's directors,
officers, employees, attorneys, accountants, financial
advisors or other agents or obtained as a result of each
company's inspection of the other and its premises or records
shall be deemed to be and hereafter will be referred to as the
"Evaluation Material." The Evaluation Material shall be
contractually subject to protection pursuant to the provisions
of this Agreement, whether or not it would otherwise be
regarded or legally considered "confidential," and without
regard to whether such information constitutes a trade secret
and is also protectable at law or in equity as a trade secret.
(b) Each company is to (i) hold the Evaluation Material in strict
confidence and secrecy, (ii) limit access to the Evaluation
Material to those of its Representatives (as defined below)
who need to know the same for the sole purpose of evaluation
the Merger, and (iii) not use the Evaluation Material for any
purposes other than the discussions with the other regarding
the Merger, or disclose the Evaluation Material to any
individual, firm or entity (a "Person") other than as
expressly set forth below with respect to each company's
Representatives, without the prior written consent of the
other.
(c) Notwithstanding the provisions of (a) and (b) above, the
Evaluation Material does not include the following: (i) any
information that either company can demonstrate as being in
its possession prior to the time of disclosure by the other;
(ii) any information which was in the public domain prior to
disclosure to the other or that comes into the public domain
through no fault of the other; (iii) any information which is
disclosed on a non-confidential basis by a third party with
rightful possession of such information; and (iv) any
information, now or hereafter, independently developed without
any reliance on any information disclosed by the other or its
Representatives, or obtained as a result of inspection of the
premises or books and records of the other. Information that
does not constitute a trade secret under applicable law shall
not be considered Evaluation Material for purposes of this
Agreement after two (2) years from the date of this Agreement.
Each company agrees that the other will advise and cause its
employees, directors, officers, accountants, attorneys,
investment bankers, representatives and agents
3
<PAGE> 4
("Representatives") who will have access to the Evaluation
Material not to use any Evaluation Material for any purposes
other than in connection with discussions regarding the Merger
or to disclose any Evaluation Material to any Person other
than to its other Representatives permitted to have access to
the Evaluation Material provided above, and any such use or
disclosure shall be at all times and in all events on the
terms of and in compliance with the restrictions of this
Agreement. Each company is responsible for the compliance by
its Representatives with this Agreement.
(d) Each company shall advise and cause its employees, directors,
officers, accountants, attorneys, investment bankers,
representatives and agents ("Representatives") who will have
access to the Evaluation Material not to use any Evaluation
Material for any purposes other than in connection with
discussions regarding the Merger or to disclose any Evaluation
Material to any Person other than to its other Representatives
permitted to have access to the Evaluation Material provided
above, and any such use or disclosure shall be at all times
and in all vents on the terms of and in compliance with the
restrictions of this Agreement. Each company agrees to be
responsible for the compliance by its Representatives with
this Agreement.
(e) Each company agrees that if for any reason the Merger is not
consummated, it will not for a period of one (1) year from the
date hereof directly or indirectly for its account or for the
account of any other Person hire any employee of the other
with whom it had contact or who was specifically identified as
part of the due diligence investigation of the other in
connection with the Merger, without the prior written consent
of the other.
9. EXCLUSIVITY. HALIS agrees that from the date of the acceptance
of this proposal until its termination in accordance herewith, neither it nor
any of its Representatives will hold or participate in any discussions with any
other person or entity concerning the direct or indirect sale of its stock or
assets, nor will HALIS or any of its Representatives entertain any offers with
respect thereto for a period of 120 days from the acceptance of this proposal.
Unless earlier terminated as hereinafter provided, this Agreement shall
terminate on the date which is 60 days after the last signature below is
obtained, should a Definitive Agreement not be entered into by such date. Except
with respect to the provisions of paragraphs 7 and 8, either party hereto may
terminate this letter by advising the other party in writing, and thereafter
this Agreement shall have no further force and effect.
10. PUBLICITY. Neither party shall publicly announce or disclose
the contents of this Agreement without the prior consent of the other party,
which consent shall not be unreasonably withheld.
11. BINDING EFFECT. This proposal, if accepted, shall be deemed
only an expression of interest and, except for the provisions of paragraphs 7,8,
9 and 10 above, it is meant only to address the intentions of the parties with
respect to the matters set forth herein. Although HALIS and HealthWatch intend
to proceed promptly and in good faith to achieve the consummation of the Merger,
this proposal does not constitute an offer by HALIS to sell, nor an offer by
HealthWatch to purchase, and is not a binding agreement, except for the
foregoing enumerated provisions, which shall be binding on the parties hereto
and their respective successors and assigns, notwithstanding the failure of the
parties to execute and deliver the Merger Agreement. Notwithstanding any of the
foregoing to the contrary, the provisions of paragraphs 7 and 8 shall survive
the termination of this letter of intent.
If HALIS accepts this proposal as a basis for negotiating a definitive
written agreement, please so indicate by signing the enclosed copy of this
letter and returning it no later than July 14, 1998. If HALIS accepts this
proposal, please be assured that HealthWatch will negotiate with HALIS in a
positive and constructive manner, with the objective of reaching a mutually
satisfactory definitive written agreement at the earliest possible date, and
then proceeding promptly with completion of the Merger.
4
<PAGE> 5
Sincerely, Accepted By:
HEALTHWATCH, INC. HALIS
By /s/ Paul Harrison By /s/ Larry Fisher
------------------------------ ----------------------------
Paul Harrison, Chairman Larry Fisher, Executive Vice President
Date: July 14, 1998. Date: July 14, 1998
5
<PAGE> 1
Exhibit 99.2
HEALTHWATCH, INC., ANNOUNCES INTENT TO MERGE WITH HALIS, INC.
ATLANTA, July 31 /PRNewswire/ -- HealthWatch, Inc., (NASDAQ: HEAL)
announced today that it has signed a Letter of Intent to Merge with HALIS, Inc.,
(OTC Bulletin Board: HLIS). The merger is expected to be in the form of a
tax-free stock exchange and is subject to, among other things, the approval of
the shareholders of both companies. HealthWatch recently announced its intent to
acquire Paul Harrison Enterprises, Inc., which owns the proprietary application
software utility MERAD, a state-of-the-art technology that has been used to
develop software for HALIS and HealthWatch. Once the mergers are complete, it is
expected that the parent company is expected to become known as MERAD, Inc.
Paul Harrison, who is Chairman of HealthWatch, Inc., as well as
Chairman and CEO of HALIS, Inc., said, "This transaction will complete the
uniting of three companies that separately have some of the factors needed for
long term success, but combined have virtually all of the key ingredients with
which to build a major software technology and services company. HealthWatch
brings an outstanding health care customer base of more than 1,000 companies,
access to growth capital, and a capital structure well suited for market
acceptance and increased shareholder value. HALIS brings a state of the art
health care software system, more than $8 million in annual revenues from its
software, consulting, and outsourcing business lines, and an ability to
immediately penetrate the HealthWatch customer base with its software and
service offerings. MERAD is the underlying application software utility from
which a virtually unlimited number of "Internet Active" business application
systems can be built. The resultant systems can be developed in a fraction of
the time, and for a fraction of the cost of conventional software."
HealthWatch, Inc., is relocating its corporate offices to Atlanta, GA,
but will maintain its California location which will be expanded over time to
represent all of the business lines that will be offered by the combined
companies. HALIS will remain in Atlanta, as will the MERAD development effort.
The combined companies plan to grow to $100 million in the next four and one
half years through a combination of internal sales and external strategic
acquisitions. Acquired companies are expected to be primarily service based with
existing customer sets into which all of the Company's products and services can
be sold. The initial healthcare focus will be expanded to other industries that
are transaction and data intensive such as insurance, banking, and real estate.
HealthWatch recently announced the completion of a private placement of
its preferred stock, and an intent to secure $3-$5 million in growth capital
during the balance of 1998. HALIS recently announced the sale of one of its
outsourcing subsidiaries, a move that improved its cash flow and allowed it to
redeem approximately 11.5 million of its outstanding common shares. HALIS also
announced outsourcing contracts with the Burger King franchisee organization and
the Wheaton Franciscan Services, Inc., (WFSI), comprised of 12 hospitals and
more than 10,000 employees, and the sale of a license to its HealthCare
Enterprise System software and accompanying services to the State of California
Department of Health Services.
The merger is expected to close within 120-180 days, subject to the
completion of due diligence and shareholder approval from both companies. In the
interim, HALIS and HealthWatch are working together to provide HALIS' software
and services to the HealthWatch customer base.
Certain statements contained herein are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's SEC filings.
- ### -
